Picking Up the Pieces After Japan's Quake: Is a Stimulus Coming Next?

Businesses are picking up the pieces after the earthquake damage Friday.A powerful mega-magnitude 8.9 earthquake rocked Japan to its core, rattling businesses with operations in the affected areas. But economists and analysts note that one of the aftershocks could be an economic stimulus for the debt-ridden country.

Most U.S. businesses, in general, seem to have escaped the worst of the damage. That's because corporate America tends to locate its Japan operations around the heavily populated center of Tokyo. A much less populated region of Japan -- more than 200 miles northeast of Tokyo off the coast near Sendai -- took the brunt of the damage.

IBM (IBM) says its Japanese operations reported no serious injuries or system outages and it's still assessing how the earthquake will effect its business. Investment bank Credit Suisse says it encountered only superficial damage to its Tokyo offices, adding that its employees managed to keep working and actually completed a number of business processes during and after the earthquake. And international law firm Bingham McCutchen's Tokyo site also remains intact, with sound technical infrastructure.

Business Impacts: Cars, Phones and Flights

Some businesses, however, were either directly or indirectly affected by the temblor. Toyota Motor (TM), for example, shut down its Hokkaido subsidiary and its Tohoku production plants, as well as its Central Motor Miyagi Plant and its Kanto Auto Works Iwate Plant. In a statement, the storied automaker noted that its employees did not suffer any injuries and that it continues to gather information, adding: "We are also currently assessing the situation at our suppliers, dealers and the impact on North American import vehicles."

Phone companies took some losses too. Japan relies heavily on mobile phones, and the quake put cell-phone service out of commission, while traditional land-line phone service was also severely impaired. Nippon Telegraph and Telephone, a major Japan telecom carrier, set up emergency phone lines and created a special Internet bulletin board where folks could leave messages for family and friends, The Associated Press reported.

Tokyo's bustling Narita Airport temporarily shut down after the earthquake. A limited number of flights have resumed departures from the airport, but incoming flights have remained halted. As a result, 10,000 passengers have been left cooling their heels at Narita, while another 11,000 wait at the coastal Sendai Airport, which suffered damage when tsunami-induced floodwaters submerged the runways.

In addition to Narita and Sendai, flight service to Tokyo International Airport, commonly called Haneda airport, was also temporarily suspended, Yonhap News Agency reported.

The Bright Side of Disaster

In spite of the catastrophic destruction caused by the earthquake, it actually caused less damage and death than the big Kobe quake of 1995.

"The region where this quake struck is not that key to Japan's economy as a whole," says James Lincoln, a professor of the Haas School of Business at the University of California at Berkeley. "Tokyo is relatively unscathed. And if it had happened there, it would have affected supply chains [and] car companies, and that would have had an impact on U.S. consumers. Sendai is only about 8% of Japan's GDP. The disruption to the supply chain is not all that great."

And natural disasters can actually end up having some positive impacts, as well as negative ones, when it comes to a country's economy, Lincoln points out.

"There's going to be a lot of rebuilding -- a lot of jobs created -- and it could serve as a major economic stimulus," he says, adding that the earthquake will also prompt Japanese residents living in the quake-ravaged areas to shop for replacement items for their homes.

Of course, that home damage hurts consumers. Much of the money the Japanese spend to refit their homes won't be coming from insurance carriers, but from consumers' pockets, according to a report from Jeffries analyst James Shuck.

Insurance Investors Unworried

But that's good news for international insurance carriers. Investors in behemoths like American International Group (AIG) apparently felt confident, as stocks in those companies rose in trading Friday.

Even though AIG has said that it is still working to assess the losses, adding that it would take some time to evaluate its exposure, Shuck offered a bullish first take. "Overall insured losses appear significant but manageable at this stage," he writes in his report. "We are working on an industry loss in the region of $10 billion. ... On this basis, we would expect around a 5% impact on most reinsurer and Lloyd's company balance sheets."

In his report, he notes that the limited fatalities -- probably in the hundreds, not thousands -- mean that most of the insured losses will likely involve property. (Fatalities accounted for 37% of the losses in the Kobe earthquake, while 42% comes from household losses.)

In this case, household losses also will likely be limited because most homes aren't insured, Shuck says. "Around 10% of households actually elect for supplementary earthquake cover and coverage is only for a fraction of the property value," he writes. "This explains the wide divergence between the 1995 Kobe earthquake that incurred $100 billion of economic losses (original value), but only $3 billion of insured losses."

Government to Take on More Debt

So, if Japanese residents lack insurance or savings, where will the money come from to rebuild their homes? The debt-ridden government, Lincoln says.

Japan already has the world's highest ratio of debt compared to gross domestic product, and this will widen its lead on other nations. Japan has a 200% debt-to-GDP ratio, roughly twice that of the U.S.

"One interesting thing for people to watch for is how the Japanese government will respond. The government didn't have its act together for the Kobe quake," Lincoln said. "A lot of people criticized the Kobe government for leaving people stranded and homeless. Japan doesn't have much of a safety net. People in crisis are expected to stay with relatives or take care of things on their own."

Hopefully those folks have enough money stuffed under mattresses -- or available to borrow from their relatives -- to rebuild their lives and pump up the economy.


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fpfp040408

God Bless OBAMA, he will come to the aid of Japan.

March 14 2011 at 11:20 AM Report abuse -1 rate up rate down Reply
1 reply to fpfp040408's comment
fpfp040408

dmnons - good pont, no matter what we call God, yahwah, or the enlighten one, or Allah, or our Father , etc , BLESS OBAMA, a great and inspirational leader & president who has saved this nation.

March 14 2011 at 2:21 PM Report abuse +1 rate up rate down Reply
Paul FIQUET

THE HATE THAT YOU READ IN SOME OF THE COMMENTS HERE FOR OUR PRESIDENT IS STILL THE OLD HATE OF BLACK PEOPLE BY SOME .. REGARDLESS OF WHAT THE PRESIDENT DOES IT WILL AUTOMATICALLY BE WRONG ..THE SAD THING IS THAT A LOT OF THE COMMENTS WRITERS CALL THEMSELVES CHRISTIANS ????AND GOOD PATRIOTS ?????

March 14 2011 at 7:52 AM Report abuse +1 rate up rate down Reply
1 reply to Paul FIQUET's comment
fpfp040408

Paul - you are 100% correct, it is truly sad & shows such ignorance and hatred still exists.

March 14 2011 at 11:21 AM Report abuse rate up rate down Reply
usetobe

How long will it take to blame the relief effort on Barry O? Never miss an opportunity to critize the President. Whatever he does, he'll be wrong....

March 14 2011 at 7:25 AM Report abuse +2 rate up rate down Reply
polncorect

The "bright side of the disaster"? Really? The debt is already 200% of GDP! They have NO MONEY! Obamanomics won't help Japan either.

March 14 2011 at 12:11 AM Report abuse +4 rate up rate down Reply
1 reply to polncorect's comment
icemanbill23

The Japanese have their own central bank and sovereign currency. They can simply print more money to pay their debt...just like we do. Maybe we can send Big Ben over there...he's really good at that sort of thing!

March 14 2011 at 12:23 AM Report abuse +3 rate up rate down Reply
windboy4u

"Hopefully people will have enough money stuffed in their mattresses????????" There mattresses were swept away!!!!!

March 13 2011 at 10:30 PM Report abuse +5 rate up rate down Reply
1 reply to windboy4u's comment
icemanbill23

I hate to disagree with you, but the people with money stuffed in their mattresses that were swept away...well, let's just say they won't be needing money any more.

March 14 2011 at 12:16 AM Report abuse +1 rate up rate down Reply
piscesbaby36

I was in Japan last year.. they are the most orderly structured people I have ever seen.. Their homes while quite small are landscaped to perfection.. Even their dogs always looked immaculately groomed. When you see their cars, I never saw one with a dent, and all were freshly washed. Their subway system does not have so much as a paper on the ground, with millions of people trafficing through every day.. and no where can you find a trash can on the streets. I have no doubt they will effectively and completely clean up their quake areas and in a very organized non complaining way.. They are a wonderful, eager to please, kind people. I pray for them and their families.

March 13 2011 at 9:10 PM Report abuse +4 rate up rate down Reply
2 replies to piscesbaby36's comment
icemanbill23

..."I think I'm turning Japanese..yes, turning Japanese"

March 13 2011 at 9:40 PM Report abuse +3 rate up rate down Reply
TenFour5150

what you are describing is a bunch of people who are trained to live like ant colonies

March 14 2011 at 12:37 AM Report abuse -3 rate up rate down Reply
dnoble7113

Japan, Australia, New Zealand, will be built back promptly, no riots or looting, wonder why that is?

March 13 2011 at 8:45 PM Report abuse +8 rate up rate down Reply
3 replies to dnoble7113's comment
k100beemer

It will be interesting to watch closely in the upcoming months & years how the Japanese government & local communities rebuild what is probably 10 times the destruction of Katrina. I would just be willing to bet it will put us to shame.

March 13 2011 at 6:49 PM Report abuse +4 rate up rate down Reply
1 reply to k100beemer's comment
TenFour5150

yes, we have trained them well since kicking their asses in WW2

March 14 2011 at 12:38 AM Report abuse rate up rate down Reply
CnOWrms1

Not to minimize the devastation and plight of Japan after their 8.9 Richter earthquake, I just want to remind Americans of the leadership we had, in comparison to a leader who promises to be unshakeable, for what it is worth to each reader. Leadership is everything to people during a crisis. Bush: "Four years after the frightening experience of 911, Americans have every right to expect a more effective response in a time of emergency. When the federal government fails to meet such an obligation, I, as president, am responsible for the problem, and for the solution. So, I've ordered every Cabinet Secretary to participate in a comprehensive review of the government response to the hurricane. This government will learn the lessons of Hurricane Katrina." Bush took those promises seriously. He and Laura made 24 visits to the affected areas, and returned to DC impressed by the determination and spirit of the people they met.

March 13 2011 at 5:38 PM Report abuse +2 rate up rate down Reply
3 replies to CnOWrms1's comment
snoel1943

What a flippant article! You hope they had money stuffed in their mattreses? If they did, those mattresses have been distroyed! Very shallow.

March 13 2011 at 2:37 PM Report abuse +5 rate up rate down Reply